Supreme Court Upholds Validity of Explanations to Rule 38 of MCR, 2016 and Rule 45(8)(a) of MCDR, 2017 — Royalty Computation on Gross Sale Value Without Deduction of Royalty, DMF, and NMET Contributions is Valid. The Court held that royalty is a tax and not a contractual consideration, and the impugned explanations do not violate Article 14 or Article 265 of the Constitution.

Writ petition under Article 32 of the Constitution challenging the validity of explanations to rules regarding computation of royalty on minerals.

The petitioners sought a declaration that the Explanation to Rule 38 of MCR, 2016 and Explanation to Rule 45(8)(a) of MCDR, 2017 are ultra vires the MMDR Act and violative of Articles 14 and 265 of the Constitution, and sought quashing of the same.

The petitioners, a mining leasehold company and its shareholder, challenged the impugned explanations which disallow deduction of royalty, DMF, and NMET contributions from the sale value for royalty computation, alleging double taxation and violation of constitutional rights.

Whether the Explanation to Rule 38 of MCR, 2016 and Explanation to Rule 45(8)(a) of MCDR, 2017 are ultra vires the MMDR Act, 1957? Whether the impugned explanations violate Article 14 of the Constitution? Whether the impugned explanations violate Article 265 of the Constitution? Whether the impugned explanations result in double taxation?

Petitioners argued that royalty is a contractual consideration and not a tax, and that the impugned explanations lead to double taxation by including royalty in the sale value for computing royalty itself. Petitioners argued that the impugned explanations are arbitrary and violate Article 14 as they create an unreasonable classification between minerals sold on ad valorem basis and those on specific rate basis. Respondents argued that royalty is a tax imposed under Section 9 of the MMDR Act, and the impugned explanations are within the rule-making power under Sections 13 and 18 of the Act. Respondents argued that there is no double taxation as royalty, DMF, and NMET contributions are distinct levies, and the explanations ensure uniform computation of royalty.

Royalty under Section 9 of the MMDR Act, 1957 is a tax and not a contractual consideration. The sale value for royalty computation is the gross amount payable by the purchaser, which includes the royalty component. Therefore, no deduction is permissible in respect of royalty, DMF, or NMET contributions while computing the sale value. The impugned explanations are within the rule-making power under Sections 13 and 18 of the MMDR Act and do not violate Articles 14 or 265 of the Constitution.

Royalty under Section 9 of the MMDR Act is a tax and not a contractual consideration. The sale value for royalty computation is the gross amount payable by the purchaser, which includes the royalty component. No deduction is permissible in respect of royalty, DMF, or NMET contributions while computing the sale value. The impugned explanations are within the rule-making power under Sections 13 and 18 of the MMDR Act. The impugned explanations do not violate Article 14 or Article 265 of the Constitution.

The petitioners filed a writ petition under Article 32 of the Constitution before the Supreme Court challenging the validity of the Explanation to Rule 38 of MCR, 2016 and Explanation to Rule 45(8)(a) of MCDR, 2017. The court heard the matter and delivered judgment on 15.11.2024.

• Mines and Minerals (Development and Regulation) Act, 1957: 9, 9B, 9C, 13, 18
• Mineral (Other than Atomic and Hydrocarbons Energy Minerals) Concession Rules, 2016: 38
• Mineral Conservation and Development Rules, 2017: 45(8)(a)
• Constitution of India: 14, 32, 265